Online exclusive: Smart pricing and the smart grid

Chris King, eMeter

The smart grid promises vast benefits like billions of dollars saved in outage elimination and management, increased energy efficiency and environmental conservation both by reducing peak demand and interconnecting distributed renewable energies. As customer-driven demand response, dynamic pricing is poised to become an indispensable functionality of the smart grid — one that results in direct consumer benefits, while enabling them to meet regulatory and market demands as well as ultimately reducing energy and capacity costs for utilities as a byproduct. Dynamic pricing makes the cost and value of energy use transparent to consumers at any given time of the day; therefore empowering consumers with actionable information to manage their energy use and reduce consumption. After all, why use a washing machine during peak at 4pm when it will be much more cost-efficient at 8pm?

One of the main concerns regarding real-time, critical peak (CPP), peak-time rebate (PTR) or time of use (TOU) pricing is that flexibility is a requisite behavior on the part of the consumer in order to reduce peak demand and increase energy conservation. Although it’s true that dynamic pricing particularly benefits consumers whose consumption is flexible, reducing the quantity of peak power demanded overall also reduces the average price paid by customers across the board, even for those who cannot alter the pattern of their energy use.

Empirical evidence from two dozen experiments conducted with residential consumers in the US, Canada, Europe and Australia reinforces the benefits of dynamic pricing and the in-home displays (IHD) that are sometimes used to present the information. In these studies, consumers were provided with smart meters, smart information and smart prices on their usage patterns compared with representative control groups. Dynamic pricing and the presence of IHDs induce a tangible understanding of a customer’s energy use and therefore incite behavioral changes when the cost of energy use exceeds value. From the experiments, direct energy usage feedback provided by IHDs encourages consumers to make more efficient use of energy with more precision — lowering energy use by 3 to 18 percent, with an average of 7 percent.

On the utility side, less consumer demand reduces required investment in generation and distribution infrastructure such as putting new power plants on standby to meet peak load. Many of those plants are fired up at considerable financial burden to cater to less than 100 peak hours, sitting idle for the majority of each year. In addition to the cost savings from decreased idle capacity, diminishing peak energy load also creates environmental value by reducing dirty resources used to meet peak electricity demand. Thus, dynamic pricing embodies the symbiotic relationship; an informed consumer is monetarily rewarded for energy conservation, the utility benefits from satisfied customers and meeting regulatory necessities, while the environment benefits from lowered demands for energy generation.


Chris King is the CSO of eMeter, and the founder and board member of the Demand Response Smart Grid Coalition. A nationally recognized authority on energy regulation and competitive energy markets, Chris King has testified before Congress and was instrumental in crafting the Energy Policy Act of 2005. King was CEO and founder of Utility.com, which provided electric, gas and telecommunications services nationwide. He has also directed various energy efficiency and time-of-use pricing programs at Pacific Gas and Electric Co. King holds a B.S. and an M.S. in Biological Sciences from Stanford University, and an M.S. in Management from the Stanford Graduate School of Business.

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The Clarion Energy Content Team is made up of editors from various publications, including POWERGRID International, Power Engineering, Renewable Energy World, Hydro Review, Smart Energy International, and Power Engineering International. Contact the content lead for this publication at Jennifer.Runyon@ClarionEvents.com.

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